An Accounting Scam that shocked the Indian Market Satyam Computers Scam


Author: Simran Chaudhary second year student at Galgotias University

To the point

Satyam Computers company was incorporated as Private limited company in 1987. Then in 1991, the company was established as Public limited company. Firstly, it was listed on Bombay Stock Exchange (BSE). The Initial Public Offer (IPO) of Satyam computers were oversubscribed by 17 times. Then around 1993 it got involved in Joint ventures with many companies like Dun & Bradstreet for IT Services and GE. Then in 1999 it again formed a joint venture with TRW Inc. It has emerged as the best Information technology Company. Ramalinga Raju had an enterprise named Maytas which was established as family enterprise, but he used Satyam’s finances to invest in Maytas. He started buying properties and when he needs the cash he took it from Satyam Computers. He manipulated the financial statements of the company to hide his deception. Even though the company was doing fine, still in 2003, the CEO of the company started creating false reports about the Growth and Profitability of the Company, even though the company was earning less than what he had showed in the reports. He was not the only one who was involved in faking reports but his brother Rama Raju, the Managing Director of the company, and other top executives were also involved. He did not only fool the public but he deceived the investors, auditors, authorities too.
In 2007, It had also become the Official IT services provider for the 2010 (South Africa) and 2014 (Brazil) FIFA World Cups. The Company also received the award for Corporate Governance and also won the Golden Peacock Award from the London Council. The Satyam computers had a revenue of 1 billion and almost touched 2 billion in 2008.
The numbers shown by them were lofty, they used fake statements, bills, receipts to achieve what they had planned. The Satyam scam was a scam of Rs.7800 Crores, considered in the list of India’s largest corporate fraud. He inflated the revenues, operating profits, interest liabilities and cash balances of the company. He showed that company is growing in a fast speed. The price of the Satyam Computer’s stock rose from Rs.10 to Rs.544. As the year 2008 was going to end the scandal started to show and also collided with global financial crisis, which was not good for the IT sector. The crisis started in 2009 when no other option left Raju admitted to all the lies and deception he had used. It had not only shocked the Indian Market but also made India’s position in international market bad. He tried everything but strategy did not work. The prices of the Satyam company’s stock started to drop. The case was taken up by Central Bureau of Investigation (CBI) in 2009. The Company was removed from the Nifty and sensex. Later it was bought by the Tech Mahindra. In 2013, it ceases to operate and merged with the parent company that is Tech Mahindra.
This case highlighted the importance of Corporate Governance.

Corporate Governance
It means rules, practices and processes used to direct and manage a company.
It involves working of Auditing Committees and duties of Board Members.

Use of Legal Jargons
Companies Act
The companies Act 1956, got abolished and the New Companies Act, 2013 took effect. It added new provision regarding auditors, which says that Companies cannot appoint an individual auditor for more than one term of five consecutive years, or an audit firm for more than two terms of five consecutive years.

Securities and exchange board of India (SEBI)
SEBI made new guidelines in 2015, they were named as The SEBI Regulations 2015 (Listing Obligations and Disclosure Requirement).

Authorities who were involved in the investigation of this scam were
Central Bureau of Investigation (CBI)
The Securities and Exchange Board of India (SEBI)
Serious Fraud Investigation Office (SFIO)

Ramalinga Raju and his brother Rama Raju were charged under the
Indian Penal Code
Section 463- For Forgery
Section 417- Cheating
Section 120B- For Criminal Conspiracy
Section 405-Breach of Trust

The Proof
The founder and CEO of the Satyam Computers himself accepted all the fraud that he did in a letter which was given to the Board of Directors. He accepted inflating company’s Assets, misusing company’s finances and the deception about the statements. He also overestimates revenues by Rs.5040 crores but the Board members and auditors were not aware about the same. He said in his letter “It was like riding a tiger and not knowing how to get off without getting devoured.” Whatever he said in the letter was confirmed during the investigation.
The Company’s promoters got arrested and four directors resigned from the post. Other members of the company were also under the investigation.

Abstract

Many scams had happened in India year after year. Scams are that big which had almost destroyed India’s stock market. After the Harshad Mehta scam in 1992, Securities and exchange Board of India (SEBI) was formed by a resolution of the Government of India. SEBI is a non-statutory body. In 2009, Satyam Computers Scam happened. It was a Hyderabad based IT company founded in the year 1987. Ramalinga Raju was the founder and CEO of Satyam Computers. The Company was considered as the Jewel of IT Industry. The was growing in a great speed.

Case Laws

Harshad Mehta Scam
This Scam happened in 1992. It was considered as the biggest financial scam in the history of India. It crashed the Indian stock Market. After this Securities and Exchange Board of India (SEBI) was established. He is known as the Big Bull of stock market.

Ketan Parekh Scam
This scam happened in 2001 by Ketan Parekh. This scam too affected the stock Market. The Market was crashed by 177 points. Ketan Parekh was a Chartered Accountant. He was arrested for the scam.

2G Spectrum case
Application for certain class of spectrum were allocated by the Union Government. They were sold on first come first serve basis.

Punjab National Bank scam
The bank was involved in a Rs. 11000 crores by issuing false guarantee.

Conclusion
People always have high hopes for the Stock Market, but after the way scams had happened they also have their doubts. Frauds were also done by normal men. Government has also made strict rules for the same. They also made acts for the same, made agencies which can work for the betterment of the investors. People invest in Stock Market with a hope, to earn some extra money. Their trust should not get broken as the investors are the one who makes the Stock Market. More strict rules should be made so that such scams will never happen. Alots of people lost their money due to such scams.

FAQs

Who was behind the Satyam Computers Scams?
Ramalinga Raju and his brother Rama Raju were behind the Satyam Computers scam.

How the Scam Unfolded?
When no other option left, Ramalinga Raju himself admitted all of his doing in a letter which he sent to the Board of Directors.

After the scam what happened with the Satyam Computers Company?
Tech Mahindra bought the Satyam Computers Company, later it got merged with Tech Mahindra.

Which Agency handled the case?
Central Bureau of Investigation Handled the case.

An Accounting Scam that shocked the Indian Market
Satyam Computers Scam

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